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WILTON, Conn. (HedgeWorld.com)--A survey of some 707 college and university endowments and educational foundations by asset manager Commonfund indicates that top-performing institutions have higher than average allocations to private equity real estate and natural resources while placing lower than average percentage allotments in hedge funds.

Their alternatives investments are more broadly diversified than the lesser performers. Endowments that achieve high returns as a group tend to be larger and to lead other schools, so this pattern may become more widespread in the future. The study was conducted during the second half of 2004.

"This may signal a broader industry recognition of the need for more due diligence, risk management and proper diversification of an alternatives portfolio," said Commonfund Institute Executive Director John Griswold, in a statement.

As a whole, the institutions in the study increased alternative strategies minimally, to 34% from 33%, and nudged up hedge funds and energy and natural resources. They reduced venture capital, private and public equity real estate and distressed debt.

The top decile and quartile performers have higher percentages of assets in alternatives overall, but lower than average percentage allocations to hedge funds and higher than average allocations to private equity real estate, energy and natural resources.

Moreover, they are cutting alternatives exposure. The top decile group reduced alternative assets to 36% in FY 2004 from 44% FY 2003. They increased allocations to domestic and international equity.

Average return across all participants was 14.7% in FY 2004, compared with 3% in the previous survey and minus 6% in FY 2002.